Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie…read more

The Threat That Will Save Europe

BRUSSELS – For the European Union, 2015 was another year of fundamental challenges. Two key elements of European integration – the euro and border-free travel within the Schengen Area – were placed under severe strain. And neither is in the clear. Nonetheless, one development in 2015 offers reason to hope that EU leaders will move beyond “muddling through” to implement bolder solutions in 2016: The threat of expulsion gained credibility.

The global economic crisis that began in 2008 exposed the deep flaws in Europe’s monetary union, though it took the near-death experience of the euro crisis of 2010-2012 to force Europe’s leaders to act, by creating a large fund to help struggling countries and establishing a banking union. Even so, more than three years later, that union – which entails supervision by the European Central Bank and the beginnings of a fund for restructuring failing banks, but lacks a common system for deposit insurance – is far from perfect.

Despite its flaws, the banking union helped to keep financial markets calm in the first half of 2015, even as Greece’s new government, led by Prime Minister Alexis Tsipras, challenged a basic feature of Europe’s approach to national financial crises: that recipients of support must engage in belt-tightening. In a July referendum, Greek voters delivered the outcome for which Tsipras campaigned, soundly rejecting the conditions – including strict austerity – which Greece’s creditors had demanded in exchange for a new bailout.

A few weeks later, everything changed. Tsipras accepted a bailout program that was, in some ways, even tougher than the one that voters had rejected. An overwhelming majority of voters and members of parliament supported the move.

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